well for the frequency it's technology innovation to call them is the bell of minutes from around rush hour we've got the future covered. good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your head lines for monday october eighth two thousand and twelve the first u.s. vice presidential debates of two thousand and twelve are this week here's an admission from joe biden about

a reported obama bundler who was at the helm of one of the largest bankruptcy in u.s. corporate history where customer money is still missing and not a single person has been held accountable which you probably will not see explored . the president. blaming john gores on the new we're doing we're on the phone calling john course literally i literally picked up the flow to hold john corps arts into john kerry wants to do things we should do. and that was not in regards to m.f. global but enjoy a poetic license as you so choose it was a year ago this month that the brokerage collapsed we'll get an update and the law is the darndest thing we'll tell you about the safe harbor provision that allows derivatives to cut the line in bankruptcy court it's come into play with m.f. global and we'll break it down and word of the day plus the merchant of venice want to secede from italy of the nation's separatist party rallied over the weekend adam

to the list we've seen if you will talk about it in loose change let's get to today's capital account. last halloween was spooky and not just because of all the costumes but futures commission merchant m.f. global the firm led by john collapsed taking a reported one point six billion dollars in customer money with it money from farmers from retail investors even from capital account guess gerald celente. mine money out of my account six figures maybe than they. think in the first word of the i.m.f. is not over and we could put the all the word in there is the usual. whatever you

think m.f. global stands for it was an unprecedented situation many contend the money was actually stolen to meet margin calls on risky european bond trades after the firm's credit rating was downgraded others believe these funds were being used on a regular basis to cover margin calls months in advance of the firm's collapse in any case it's been almost a year and we have seen no arrests nor have customers gotten all of their money back so let's recap still a little where are they now let's see john chorus line c.e.o. we heard from a last december and a house committee hearing. i simply do not know where the money is or why the accounts it's not been reconciled today. since then he's been seen in the hamptons leaving starbucks as you see there he has not however been seen in cuffs nor is he likely to be according to the new york times which reported in august no charges

were expected for former m.f. global executives and in that same piece though the times reported corps i have however weighed whether to start a hedge fund now the former new jersey governor and u.s. senator a democrat i should say has been an obama bundler according to the center for public responsive politics and we haven't heard much more than crickets from the obama administration on this whole stealing money escapade so we're left with photos of happier times like you saw there which i think we doctored ok there was no money but obama and gore as i have been together many times and were also left with awkward old clips like this. because he had been in the pit he had been in the furnace and we trusted his judgment in the kind of forget this. yes we don't forget this was joe biden talking about why he called john corazon for advice also in true vampire squid form the former goldman sachs c.e.o.

has his tentacles stretched through other areas of government gary gensler head of m.f. global regulator the commodities futures trading commission remember recused himself from the investigation because he worked at goldman with corus on now fighting on behalf of m.f. global customers this entire time still fighting is james capitulates who has a hedge fund is incidentally an attorney and he's also president and founder of the commodity customer coalition he joins us now to give us an update close to a year after m.f. global imploded and your world changed forever too yeah thanks for being on the show you're welcome thanks for having me yeah so james give us a little bit of an update in terms of how much money have you wes customers received back from m.f. global how much have u.k. customers received. customers who invested with m.f. global to then trade on u.s. futures exchanges have received eighty percent back which is great those who

invested through the u.s. end of the book to trade on foreign futures exchanges have only received five percent back five per cent. and does that include people that had their funds hypothecated. i mean there's no differentiation between those of in rio prosecutor or not. is far less favorable to customers than us law and trial on these phones isn't slated to start until april of next year ok in the u.k. and how much money is still considered missing because originally it was at one point six billion dollar number and since i've seen one billion dollars quoted how much is still unaccounted for well going to parse words there a little bit i mean or so we know where the money is that ok customers are still one point six billion in phones nine hundred million of them is over in the u.k. it's disputed or sorry seven her. millions over the u.k. nine hundred million u.s. is what was stolen by m.f. global senior executives to meet those very margin calls you mentioned the begin to show ok so how are safe harbor provisions affecting customers ability to get money

back well. when the firm was going bankrupt. there's there's kind of a timeline here if we go back to like over twenty seventh. m.f. global had about one hundred ten million dollars of its own money placed in the customer segregated accounts that's almost no sperm access and it's there to protect customers in the case there was some kind of blow up with a major customers account so that the firm could meet its segregation requirements so during the twenty seventh is that after the run had already started on m.f. global people are pulling their money out left and right panic has already ensued the c.m.e. which is the d.s.r. zero regulator of about global comes in and says no wire transfers of the customer accounts without our permission very next day at m.f. global exacts make a five hundred million dollars manual adjustment to the calculations with no supporting documentation whatsoever and you know comparison like our firm if we

make any kind of adjustment to accounts like fifty dollars we need supporting documentation for that five hundred million dollar adjustment to make some kind of error with no justification for this error and this allows them to show that they had exactly two hundred million dollars of firm excess in that account which common sense says there's no way this firm excess number is going up during the run on the bank ok ok that two hundred million dollars number magically matches the amount of the margin call that m.f. global had in the u.k. with j.p. morgan ok at the same time m.f. global's trying to liquidate securities to raise cash and j.p. morgan says hold on we're going to give you the proceeds of all these commercial paper transactions until you meet the margin call ok so again that very. day m.f. global makes a transfer that's improved in under three minutes internally had no approval from the c.e.o. me but two hundred million dollars out of their customer account put on their house

account and then they wired one hundred seventy five million of it to j.p. morgan ok so then where do we stand now in terms of what we're likely to see in the way of criminal charges because the new york times reports that there aren't likely to be any charges filed against m.f. global executives first of all is that the same thing you're hearing well that's what the d.o.j. has put out there but johnny boy let me tell you the only game in town. who was in town james could do a list about the state we've got we have fifty states attorney generals and we also have another option that i'm not quite ready to discuss yet but can you give us a hint i can't give you a special prosecutor well that's one thing we've tried to get in the past i don't think that's likely at least under the obama administration. got something up our sleeve but rest assured we are going to get someone in charge corps on and the c.c.c. is going to help prosecute him to the full extent of the law so bomb when people buy him a little bit of time. but he's going to be at orange jumpsuits at some point ok ok

fighting words james because they let least unless obama gives them a pardon ok fighting words let's talk about why you believe that fraud has been committed that john is responsible what is your smoking gun because i take it that you don't believe that this was just chaos and negligence as sources close to the case have told publications like the new york times so if we go back to that time i wonder why in all this money in j.p. morgan ok keep in mind j.p. morgan is the custodian for a lot of the customer money clearing and certainly major for a lot of m.f. global's trades most of their trades and they are its biggest lender and they don't one point two billion dollars revolving credit facility so j.p. morgan knows a lot about what's going on in m.f. global so on this day of the twenty eighth they ask them of global for comfort letter which is asking them of global to put it in writing that no customer funds were. part of that wire transfer should meet that margin call and they never got the letter writing don't get that letter so j.p. morgan said another letter with water now language and if golan signed that letter either they sent a third letter m.f.

global and signed that love letter either so that j.p. morgan has reason to believe that this customer money being wired wired over m.f. global wouldn't put it in writing that it wasn't customer bonnie and yet at the same time that their wiring the customer money that they knew was customer money out the door as per john core zines instructions as you know if o'brien has testified but i thought he had pled the fifth. as part of the trustees report and produce an email this that she sent same as per jaycee's instructions so most wire transfer in the same time they're they're sending that water out the door to match the magically falsified. report that matched the margin call. perfectly they were redirecting customer requests for wire transfers checks and they were essentially checked so they were taking according to reports they were taking the liabilities for these checks off. they were keeping the cash balances as

assets to inflate you know there's a group or to stay solvent in the eyes of the c.m.e. . so and the part about just thirty seconds before we go to break is that that e-mail that said per jaycee's instructions that then is the smoking gun for john for a science knowledge of this all going on i mean that's definitely part of it but you know there's more than you can fraud cases it's you generally don't have one one e-mail it just says hey steal the money i mean biden said that obama's of course one of the smartest guy he's ever met he's not going to say steal the money in the e-mail ok but taken together all of these badges of fraud show conclusively that they knew it was customer money and they made the decision we're going to take us for money and meet the margin calls on our trades rather than do the legal thing and the honorable thing liquidate those trades take the loss of quote business all right james could tell us when we get back we'll talk more about anything that regulators have been vacated that supports what you're saying and also the bigger

picture because since m.f. global collapse we've seen p.s.g. collapse if you've been involved in kind of cleaning up the mess after so more james came to us president and founder of the body customer coalition in a minute still ahead speaking of m.f. global we'll tell you more about a provision that permits derivatives to sit front and center in bankruptcy court james good to have talked about it will break it down and word of the day but first your closing market numbers.

culture is that so much i'm going to use it as a a minute i'm going to markland when is me and really the end of the strategy of the u.s. led mission in afghanistan is in a shambles green on blue attacks against coalition. see a story. you hear see some other part of it and realize that everything you. are welcome to the big picture.

in. iraq. the economy. the arab. the beasts. all right welcome back it's almost the year anniversary of m.f. global's collapse so we're having a date with james cook to list president and founder of the commodity customer coalition about why we haven't seen any body in handcuffs and why customers are

still out cash so james i want to get back to what we're talking about as far as the evidence of fraud have we heard any regulators or authorities indicate that they believe there was fraud so back in december terry duffy who's the chairman the c.m.e. and sorrow testified before congress that corps on knowingly submitted a falsified and that. c.m.e. had spoken to an employee who had direct knowledge of the course i knew about the improper transfers so i was sitting congress that day i met with duffy. ahead of that testimony and he's said to me quote james i like what you do for the customers i'm going to stand up and do the right thing and he deviated from his plan remarks to go and do the right thing and call our course and i personally felt course i should have been arrested on the spot for misstating facts in front of congress but instead i believe it was the d.o.j. but it was one federal agency came up a couple weeks later and said hey see i mean why don't you stop your investigation

we have the f.b.i. have it from here and a year later what is the d.o.j. investigation brought forth i mean there's a clear crimes here. and they're going to they say they're going to walk do you think it's political one hundred percent i think it's political so what would be different in a romney administration because romney has more wall street cash than obama this time around so is this kind of a case of it's going to go on a matter who is in charge well i don't want to do you know the republican democrat thing are not very diplomatic but you know i will say that obama seems to have this kind of like a lead us attitude workflow it's you're my buddy you like the rules don't apply to you and if we were to previous republican administrations like george w. bush who i was not a fan of in the least he'll use one went after the enron guys who he was friends with and i think the texas thing. maybe it's a texas thing but to me if you break the law you got a good jail doesn't mean you're friends with you know i couldn't agree more and we of course counterfactual we can never understand like what would have happened if it with a different president or what happened in the future but i do want to ask because

since m.f. global we've seen p.f.g. best go under and and that situation we had a suicide note when the c.e.o. attempted suicide saying i think committing fraud all these these years and gotten away with it has anything fundamentally changed in terms of regulation or the way they're being enforced or conducted that is protecting customers better a year after we've seen m.f. global collapse yes somewhat there's been a change to our mind statement verification vienna face put in. the but i think last january which is kind of what brought this piece of fraud to light knew the jig was up. you know just for being safe and something more in the sea i mean to put forth a proposal that says instead of firms keeping excess funds within the customer account they could do it in a sub account that's linked to the which. doesn't have that commingling in the center which i think that's a big step and there's been some other technical steps as well organization put forth

a plan before the bankruptcy saying that we should mirror canada's. liquidity facility. which is sort of like an insurance system but a lot faster and better and that we need that here for features so basically insurance like life insurance what's a little different insurance like sipek what we have are securities takes like three to five years to pay and it's a very slow moving behemoth and there's really no moral hazard element there because sipek then doesn't go after the fraudsters out of itself but our plan calls for a phone that would go into the next day after after a short fall get customers one hundred gram back or a two hundred fifty gram back some level of comfort there then take over the the rights for those amounts in a bankruptcy proceeding and go after the election and we. talked about that plan of yours before and it's funny i didn't know it was modeled off of canada's fund but i was just talking with a global customer in australia who if they haven't gotten any of their money back according to him they're expecting seventy percent by the end of the month

hopefully but he said that a number of traders are actually opening canadian l.o.l. seas so that they can get this canadian regulatory protection it's kind of like a benign regulatory arbitrage have you heard more about that you know if i ever heard that much about it but it makes a lot of sense i mean wall is built based off of the u.k. law which again has very weak customer protections they've done a little bit better since this is lehman supreme court case verdict last year but still not great. and why not go to canada to do that yeah and if the u.s. modeled something after this canadian investor protection fund do you think that that would solve a problem here. we definitely think so in fact our organization is working on both of a private way to implement as well as potentially go in the legislative room all right to see how it goes james could tell us thank you so much for this update thanks for being on the show thanks for delaying your flight to be with us from what i'm told james good to as president and founder of commodity customer coalition.

all right time now for word of the day when we break down a financial term for a very smart viewer but just maybe not the financial expert and given our discussion about m.f. global you heard james and i talk about this word of the day is safe harbor it's not where you park your boat to be safe what exactly is safe harbor that we're talking about safe harbor protections are in the bankruptcy code and they include provisions that protect non debtor counter parties from the normal course in bankruptcy many transfers of cash or securities. made in the final weeks before bankruptcy in order to meet margin calls on over the counter derivatives for example are not subject to clawbacks as long as the parties involved claimed they

had no knowledge of fraud which is to claim that and show that let's take a look at one of the ways it has been used though in the case of m.f. global where more than one point six billion dollars of customer money that went missing from accounts one would assume that the money would go back to the customers once properly discovered right but you heard from james that that hasn't happened and it wouldn't necessarily under the safe harbor provisions companies that received hundreds of millions in transfers from m.f. global customer funds in its final days may simply get to keep the money as a result of this and they would be within their legal right to do so also any collateral and the global post with counter parties before the bankruptcy those kind of parties they get to keep that to these assets are beyond the reach of creditors so it would be as if you bought a car that you didn't know was stolen and when the owner of the car came to take back the car safe harbor would protect you from having to return the car but is that really the way it works be a knowingly bought a stolen car this is real unfortunately we have to take you somewhere where you can

we rule is this is a joke no joke seconds later a flatbed pulled up and took the l'abri all these two thousand and six hondas accord. this definitely works in the financial world so unlike what would happen to ordinary citizens outside their dealings with banks creditors and customers can sail into safe harbor as when they're dealing with stolen assets by saying they didn't know they were stolen now the safe harbor provisions are supposedly intended to avoid a financial ripple effect where a large firms bankruptcy infects the market as a whole by providing immunity to other market entities however it counter parties are not incentivized to perform due diligence on each other and instead rely on the ability to liquidate the other as collateral upon bankruptcy a large counterparty failure easily leads to a fire sale of all posted collateral so much for the systemic risk argument now the provisions where they even come from well they were first introduced into the

bankruptcy code in one thousand nine hundred two in a very limited manner safe harbors have since been expanded though over the years most recently in two thousand and five as part of the bankruptcy abuse prevention and consumer protection act which sounds really nice but maybe it's not the two thousand and five act extended safe harbor provisions to include clude repos and swap agreements in addition to futures contracts and securities agreements which are already applied to and who were some of the biggest lobbyists for this act you could have guessed it but we have it all right here for you bank of america citigroup j.p. morgan merrill lynch and the american bankers association these five entities spent a combined six million dollars to get this bill passed and the poorly named bankruptcy abuse prevention and consumer protection act arguably neither prevents abuse nor protects consumers and the big losers today may be that customers are trying to recover all their funds such as those at m.f. global that sunk with the ship owner in

a so-called safe harbor but now you know what it really is and how maybe wrong that name is. let's wrap up with loose change i had to make rico famous here to talk about a story coming from a land that he lived in so maybe he has. some first hand knowledge when you think of venice italy you might automatically take your think shakespeare if you costs there we don't. if you tickle us do we not laugh if you poison us do not die and if you're wrong ghosts surely not. well

the merchants of venice i don't actually know if they're merchants or how many merchants are in this movement but because of italy's economic crisis a new movement has begun to make. has begun they want to make venice an independent state activists actually held a rally over the weekend thousands reportedly it attended they want to create a republic veneta what do you think dimitri i think this is to be expected this is the irony of integration because as the european union consolidate by force more and more you see a lot of these rich areas with in countries themselves it's not just countries want to break off regions within the country saying we want to be in spain and i think in scotland too so that is extremely wealthy they've seen tours of drop off i think i don't know the numbers are but they have been affected by this economic crisis in a way that perhaps they wouldn't be if they were independent were able to recycle funds within their own region so that's the same thing right currencies too yeah so it sounds like along with your ad you advocate for competing currencies should be

allowed to be competing regions within a country that are able to just go along if they want that's natural for italy too because it was city states right it wasn't it wasn't. a traditional nation state the way we have france or germany after bismarck or whatever these guys are used to having strong cities states like venice like florence so it's not unnatural for them they want to glide away and they're going from mario monti and mario dragan they want out they want to write and. you have to cast the margins of venice and the kind of theme there is of course the merchant of venice he was jewish and at that time they were the jews in venice were separate so he's going to separate so that's kind of the reason we say so the notion of it as it was to me to not emerge historical understanding i was. not merchant of venice ok that was the result was something a couple of the ridges deep or the histories yes and it's also worth mentioning that today euro zone leaders european finance ministers. we're meeting in luxembourg to talk about what else the same broken record keeping everything

together focused on spain and greece meanwhile i feel like another separatist movement as reported by the day that's gaining steam you know it was in spain now italy next germany it's you know what you know serves as well it's to be expected because if people do what's in their best interest and these venice is just saying ok look this maybe it's in our best interests to get out of this this situation get out of the euro get out of whatever get out of italy because it's in our economic assistance because we're seeing you get on the devastate want to see the station of others they don't know where they just don't want to put their all there in there whatever they're seeing there are happy with it it's not like as bad as greece obviously you. know it's a glider around and they're very good at anything race where you're just running up against molotov cocktails up their research and information from from them to something where i was only about there they get so much for watching be sure to come back tomorrow in the meantime you know you can follow me on twitter at lauren lyster like us on our facebook page it's right there watch us on you tube or in

h.d. on hulu and from everyone here thank you so much for watching and have yourself one fantastic night. one.